International Intrinsic Value

The International Intrinsic Value strategy has a high-quality, large-cap core portfolio of 65-85 internationally domiciled stocks trading on U.S. exchanges that are balanced across multiple sectors and regions. The portfolio is constructed using a fundamentals-based, bottom-up process to identify stocks with an attractive valuation, positive and improving fundamentals and market acceptance of these factors. The strategy is built upon the firm's Price/Intrinsic Value philosophy, which is the basis for all of the firm's strategies, and utilizes a proprietary Multi-Factor Ranking Model to identify stocks we believe are most likely to outperform.

*The information shown in this chart is based on a representative portfolio and is supplemental to the Composite. Specific stocks discussed are included solely for illustrative purposes, and are not and were not recommendations for purchase or sale by investors. All or some of the specific stocks mentioned may have been purchased or sold by accounts within the Composite during the period, or since the period, and may be purchased or sold in the future. Investors should not construe any security result as predictive of future results. A complete listing of the holdings as of the period end is available upon request.

Todd Asset Management believes Price/ Intrinsic Value ("P/IV") is the most effective fundamental calculation to determine the true valuation of a stock. We believe investing in stocks with attractive valuation, improving fundamentals, and market acceptance of those characteristics increases the probability of outperformance. Combining them in a comprehensive, disciplined process with risk controls should result in a portfolio that consistently outperforms the MSCI ACWI ex-US over full market cycles.

Screening Process

Screening is a fundamentals-based, bottom-up process that is formalized in the combination of the firm's Price/Intrinsic Value philosophy and proprietary Multi-Factor Ranking Model. Fundamental research, using corporate financial reports, Internet sites, quantitative evaluations, Wall Street research and government reports, is a vital and ongoing part of the process.

The International Intrinsic Value strategy is bottom-up in nature. The screening process starts with a universe of 3,200 international companies which is narrowed to approximately 800 that are traded on U.S. exchanges, have a market cap >$1 billion and an internal minimum quality rating of B-. We then identify a universe of attractively priced stocks using our Price/Intrinsic Value calculation; generally this universe is the least expensive third.

Following the P/IV screening, we rank the available universe according to our proprietary Multi-Factor Ranking Model. A stock must have an attractive P/IV to be considered for our portfolio, but we also examine several additional factors. The process combines:

The Multi-Factor Ranking Model assigns each stock a composite ranking score that reflects in a single number all of the factors above that we believe are most critical to identifying a stock's true future potential. The composite scores allow stocks to be accurately compared, regardless of sector or geography.

Before finalizing a portfolio, we verify each of the model inputs with a thorough fundamental review of each stock. We examine normal earnings to determine if they are appropriate, depending on the cyclical nature of the company. The long-term growth rate is scrutinized and compared with competitors and sustainable IRR growth rates, while keeping in mind the company's products and market placement. We review the internal quality rating to make sure it appropriately illustrates the type of risk/reward premium a stock needs for our valuation calculation. We also evaluate the company's fundamental outlook to assure there is an investment rationale for inclusion in the portfolio. Then, we determine whether the stock is being accumulated or distributed in the marketplace by viewing its relative strength and upside/downside volume. Finally, a stock must have an identifiable fundamental prospect for growth that would cause an increase in its valuation. After considering these factors and validating our model inputs, we assemble a portfolio by selecting what we believe are the most attractive stocks that offer the largest potential upside, highest quality, and maximum diversification for our clients.

The time-valued judgement and nearly 30 years of average industry experience of our portfolio managers focuses the inputs of our process with guidance as to which market conditions and research carry more or less importance. While holdings in the portfolio are formally reviewed by our portfolio managers each week, informal discussions take place almost daily and changes are made as needed.

Portfolio Construction Methodology

The International Intrinsic Value portfolio holds on average 65-85 stocks balanced across multiple countries and industry sectors. The portfolio is limited to ±10% of the ACWI ex-US sector and region weightings, including emerging markets and Canada. We do not employ any type of derivative strategies.

Most of the stocks in the portfolio are assigned a weighting of 0.5% to 1.5%. Stocks with a stronger track record and ones we have used successfully before may warrant a larger initial weighting, while new names usually start at 0.5%. The largest holding may be 2% at initial cost, and 3% at market. This strategy can be managed according to client investment guidelines.

Risk Management

An experienced portfolio management team, sharing a common set of core beliefs and having the ability to recognize the underlying drivers for growth and value in individual stocks, are the centerpiece of our strategies. We couple this with buy and sell disciplines based on valuation and fundamentals for all of our strategies to limit the risks inherent in stock selection. Approximately 35% of the portfolio's risk is controlled by the P/IV factor; the remaining 65% is controlled through diversification and sector decision rules.

Together, these measures are designed to support our underlying discipline of buying large-cap, high-quality companies that are attractively valued, have improving fundamentals and have market acceptance of those factors to generate outperformance.

In addition to identifying attractive buy opportunities, our multi-factor ranking is designed to identify weakening holdings through a declining multi-factor composite ranking score, so we diligently monitor these scores. We have found that stocks with high intrinsic value tend to be more volatile and underperform the market in subsequent periods and we adjust the portfolio accordingly.

Our sell discipline is also a vital risk control measure. There are two levels of urgency for selling that can best be described as discretionary and mandatory:

A stock is reviewed for potential sale or position reduction when its P/IV is greater than 1.3x the MSCI ACWI-ex US, the multi-factor composite ranking falls below the midpoint of 8 or the fundamentals of a company/industry are perceived to have weakened.

A stock is a mandatory sale when its P/IV exceeds 1.5x the MSCI ACWI ex-US or the multi-factor composite ranking falls below 6. A stock is also sold immediately if a structural negative is identified or if we become concerned about the integrity of a company's accounting.